Mortgage demand to decline as default rates rise
The Bank of England says availability of secured credit to households decreased in Q3 and is expected to decrease further in Q4.
More property owners are putting their homes at risk after the Bank of England revealed default rates on secured loans and losses given default increased in the third quarter (Q3) with both expected to increase further by the end of the year.
The Bank of England Credit Conditions Survey also reveals that although default rates for total unsecured lending were unchanged in the same time period they are also expected to increase during the fourth quarter (Q4).
DEFAULT RATES
Default rates are also expected to increase in Q4 for small businesses, increase slightly for medium-sized businesses and expected to be unchanged for large businesses. Losses given default were unchanged for businesses of all sizes in Q3.
Meanwhile the Bank of England (main picture) said lenders also reported that the availability of secured credit to households decreased in Q3 and is expected to decrease further in Q4.
Hina Bhudia, Partner, Knight Frank Finance, says: “Demand for mortgages is set to decline over the coming three months.
“Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so.
“Borrowers that do act are generally opting for trackers. For many people, the risk that monthly payments increase in the event of another interest rate hike is worth taking if it gives them the opportunity to see cuts in their monthly outgoings next year.”
Typical 2-year trackers at 75% LTV are still above 5.50%, while retail bank tracker products sit a little over 1% above the base rate.
MORE BUSINESS
Bhudia adds: “The banks remain very eager to bring in more business. Most will be behind on their lending targets due to the subdued conditions in the property market.
“Private lenders have been trimming margins on tracker products to gain market share but the margins at the high street banks are already pretty thin.
“We don’t foresee large moves in mortgage rates through to the end of the year. That’s reinforced by the fact that lenders believe spreads over the Bank Rate or appropriate swap rate will widen in Q4.”
